The government’s coffers will be boosted by hundreds of millions of pounds as a result of a record wave of fines which are expected to be announced by the City regulator on Wednesday to punish banks for lax systems which allowed rigging of currency markets.
Six banks – including Barclays, HSBC and bailed out Royal Bank of Scotland – are thought to be facing fines of up to £250m each for manipulating the £3.5tn a day foreign exchange markets. The fines will be levied by the Financial Conduct Authority. The FCA’s US counterparts are expected to levy their own fines, which are likely to eclipse those handed out for the manipulation of Libor over the last two years.
State-backed RBS, which has set aside £400m to cover penalties for forex rigging in the UK and US, has refused say whether the bank’s staff will bear the cost, through a cut in bonuses, or its shareholders.
Discussions were expected to continue late into the night about the settlement, which the FCA is attempting to broker with the six leading players in the foreign exchange market. The regulator was aiming for a synchronised announcement involving the six banks in an attempt to avoid a re-run of the Libor scandal, where some banks are yet to be penalised – more than two years after Barclays was fined £290m by regulators in the US and UK.
As well as RBS, HSBC and Barclays – which have together set aside more than £1bn for potential fines – the FCA is also preparing penalties against US banks Citi and JP Morgan and the Swiss bank UBS. The Swiss bank is also facing punishment from its domestic regulators while the Wall Street Journal reported about 10 former and current employees had been warned of potential action by the Swiss regulator. Bank of America Merrill Lynch is also facing a fine from the US regulators after taking a $400m (£250m) provision last week.
The boards of the banks were said to be meeting on Tuesday night to ratify the settlements with the FCA – and there were some suggestions that the decision may not be taken until late in to the night meaning the announcement could be delayed.
The fines from the FCA are expected to surpass the record £160m imposed on UBS over Libor in 2012.
As a result of a change to the rules imposed after the Libor rigging scandal, all fines for “misconduct” levied by the City regulator are handed to the Treasury rather than kept by the regulator.
The FCA is allowed to keep enough cash to cover its costs.
The Treasury did not comment last night when asked how it intended to use the proceeds from the latest fines, which will go into the “consolidated fund” used for general purposes. It has in the past used fines from Libor rigging to make donations to armed forces charities and the emergency services.It is not yet clear what costs the FCA will have incurred during its investigation into currency manipulation which is thought to have focused on what is know as the 4pm “fix” - a benchmark used to price several currencies. The allegations focus on suggestions that traders could put in client orders during a 60 second trading window used to set the benchmark price.
